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Housing market: Hard assets are ‘one of the great hedges for inflation,’ strategist says

Miller Tabak Managing Director and Equity Strategist Matt Maley joins Yahoo Finance Live’s Julie Hyman and Brian Sozzi to discuss bank earnings, the housing market, inflation hedges, and the outlook for the stock market.

Video Transcript

BRIAN SOZZI: All right. Staying on the market, let's bring in Miller Tabak chief market strategist Matt Maley. Matt, good to see you. I know you are an astute watcher of market technicals. Now, within the course of a week, we've had disappointing profits out of JPMorgan, weakness on margins there. Seeing the same thing in Goldman Sachs, stock was getting-- is still getting slammed in the session. Is this a wake-up call to investors that we might see a bigger downdraft as earnings season starts?

MATT MALEY: Well, it certainly could be. I mean, one of the things we do have to remember, though, is that it's kind of weird what happens with the bank stocks. Even when the report good earnings, for whatever reason, the group seems to go down. I mean, it rallies into the earnings season. They always report at the very beginning of that earnings season. And then the stocks seem to sell-off a little bit. The thing is this time around is that people are being surprised by, as you mentioned, JPMorgan, also Citigroup, of course, last week on Friday, now Goldman Sachs. We have a number of-- those are the big names. But we have another-- quite a few names reporting later this week.

So if they continue to report some of these disappointing earnings, that's not going to bode well necessarily for the rest of the group-- I'm sorry, for the rest of the marketplace. And remember, the earnings were-- as good as they've been this year, we're still a very, very expensive stock market. So we need a really, really good earnings season if the market's going to rally further in a face of a Fed that's nowhere near as accommodative as it was last year.

JULIE HYMAN: Hey, Matt. It's Julie here. We got the monthly Bank of America fund manager survey this morning that showed that banks are the most held right now, tech is where people are selling. And so when you get selling like this in the financials, what are the sort of implications and ripple effect that we can see in the market?

MATT MALEY: Well, one of the things that we get is, of course, is that we've seen so much more weakness in the NASDAQ than we have in the S&P. And what you worry about, as the market starts to come down-- when the market first starts to come down, you have people going in and they buy, you know, they find certain groups with their flight-to-safety in the stock market. We saw that in December with two or three really big cap names like Apple computer. They stayed with those techniques. Then they were like, OK, that's not really working because rates are continuing higher. Let's go into the banks and the energy names.

But at some point, when the overall market gets hit, they all go down. I mean, obviously you'd like to see certain groups were outperform. But even the ones that have a bullish, you know-- their outlook, which still looks quite good, they all come down. And that's the big concern right now is that the banks, and even the energy stocks-- the energy stocks are holding up today. But if they start to roll over, then there's no place to hide, and then people just go simply into the treasury market or gold or things like that, and the whole market starts to come down.

So that's my big concern is that people have been finding some flight-to-safety trades within the stock market, and they're starting to lose those now.

BRIAN SOZZI: Well, Matt, is it time to start nibbling at some of these tech names? Because you still see them trading in tandem with the rise and the 10-year yield. But if they're so under-owned or not liked right now, why isn't that an opportunity?

MATT MALEY: Because they're not necessarily cheap. I mean, the whole thing we have to worry about is what would happen with the Fed provide excess liquidity, emergency levels of liquidity last year long after the emergency had passed in the economy. And so the stock market pushed much further above the underlying fundamentals. Even though the fundamentals in the economy were improving, and earnings were improving quite nicely, the Fed's emergency-level liquidity pushed the stock market up just as fast as the economy, so it never was able to play catch-up.

At some point, we need to have this thing come back down and get closer together, so they're going to have to kind of meet somewhere in the middle. And until I think, you know, these stocks-- some of these tech stocks get more froth taken out of them, I think we're going to have-- it's going to be the line of least resistance is going to be a bit lower. I mean, let's face it, the CEO of Microsoft sold $370 million dollars worth of stock, 2/3 of his holdings. He didn't do that because he thought the stock was going to go down 5% or 10%. I think he was worried that, even though he's done a great job running the company, the stock is too far ahead of itself and needs to come down even more.

JULIE HYMAN: Yeah, it's always good to watch those insider buying and selling filings. I want to switch gears to another group, and that is the home builders. We just got out the National Association of Home Builders sentiment just a few moments ago. It came in at 83 in January versus 84 the prior month, and was the same as it had been last year at this time. I know you've been watching the home builders closely as well.

I mean, there's a situation where, I don't know, what that mismatch looks like between the stocks and the growth because the housing market's been going crazy.

MATT MALEY: Yeah, this is one where I think we're actually going to-- the home builders are starting to come down, there's been some cracks. You look at Home Depot, which has been a rock-solid, superstar stock last year, has been getting hit pretty hard. And the correlation between Home Depot and the rest of the group, it tends to be very strong. And so the fact that it's weaker is a problem. But, you know, this rise in interest rates, people are worried about the rise in mortgage rates, and that seems to be hurting the group.

To be honest with you, though, I do think, even though it should come down a little bit further, it's going to provide a great opportunity for this group because one of the great hedges for inflation are hard assets, including homes. I mean, during the 1970s when we had an even worse inflation situation, real estate, especially residential real estate, did very, very well. So I think that, even though it's-- people are worried about mortgage rates really hurting, and it probably will hurt a little bit. But I think it's going to provide a great buying opportunity because of that hedge against inflation.

So you don't want to be necessarily aggressive right here, but this is one group that I think is going to do a lot better than people think once they get a little bit more washed out.

BRIAN SOZZI: And Matt, one hedge-- one supposed hedge, or thought to be a hedge, was Bitcoin against inflation. But that has really got blown up here. Any opportunity to start buying here around $40,000?

MATT MALEY: Yeah, one of the things-- $40,000, that's kind of the line in the sand. That's the level that we bounced very, very strongly off, you know, just a few months ago, and it needs to hold that level. One thing I would warn against is some people are saying-- you know, are pointing out today that the 50-day moving average on Bitcoin has crossed below the 200-day moving average, and that is a death cross. It actually isn't a death cross. You have to see both moving averages declining. The 200-day moving average is still rising for Bitcoin.

So I'm kind of confident. I think the thing with hold $40,000, so it could be where you want to nibble a little bit more here. But you do have to be very careful because if it does break below $40,000, that momentum play is just going to be completely thrown out the window, and people are going to start thinking that it's going to drop quickly to 30,000. So like usual, if you're trading in the cryptocurrencies, you have to be very, very nimble.

And the one thing, again, with the Fed pulling back, they didn't go from neutral to tightening. They went from massively massive stimulus programs to tightening. That hurts assets that were helped by their largesse. One of those were cryptos, so you need to be very, very careful, very nimble here, and you might still want to look at gold as an hedge on inflation. It's worked for 5,000 years, I can't imagine it's going to stop now.

BRIAN SOZZI: Well, hopefully, 5,000 years, we're still here, and we can have you back and talk about the move in gold. Miller Tabak chief market strategist Matt Maley, always good to see you.